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Private benefits in corporate control transactions

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Author Info
Poulsen, Thomas () (Department of Business Studies, Aarhus School of Business)
Abstract

This paper presents an analytical framework from which it can be inferred whether sellers or buyers in corporate control transactions value private benefits highest. I am thus able to suggest an answer to the question: Are blocks of shares traded because the buyer is a more efficient monitor with high security benefits, or because the buyer has high private benefits from the control rights that come with the shares? Using voting rights as the vehicle for private benefits, I find that the selling shareholders in block transactions attach more value to private benefits than the buyers. In tender offer transactions, the answer is that private benefits are insignificant to both sides of the transaction. As an alternative measure of the transaction premium, I calculate the abnormal return premium. This represents the stock market’s valuation of the transaction. I find that the stock market puts a positive premium on the sample transactions. Although this is not confirmed by the regression results, the market therefore expects higher future security benefits. The negative coefficients of relative voting power lend support to this conclusion, but they are not significant. I also find that inside shareholders have a very small effect on these results, but that they do attach more value to private benefits.

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File URL: http://research.asb.dk/fbspretrieve/1356/F-2008-03
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Publisher Info
Paper provided by University of Aarhus, Aarhus School of Business, Department of Business Studies in its series Finance Research Group Working Papers with number F-2008-03.

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Length: 42 pages
Date of creation: 19 Mar 2008
Date of revision:
Handle: RePEc:hhb:aarbfi:2008-03

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Postal: The Aarhus School of Business, Fuglesangs Allé 4, DK-8210 Aarhus V, Denmark
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Related research
Keywords: Private benefits; security benefits; corporate control; block transactions; tender owners; ownership structure; influence; voting power;

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References listed on IDEAS
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  7. Jennifer Dlugosz & Rudiger Fahlenbrach & Paul Gompers & Andrew Metrick, 2004. "Large Blocks of Stock: Prevalence, Size, and Measurement," NBER Working Papers 10671, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Simeon Djankov & Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2005. "The Law and Economics of Self-Dealing," NBER Working Papers 11883, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. G. William Schwert, 2000. "Hostility in Takeovers: In the Eyes of the Beholder?," Journal of Finance, American Finance Association, vol. 55(6), pages 2599-2640, December. [Downloadable!] (restricted)
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  10. Lease, Ronald C & McConnell, John J & Mikkelson, Wayne H, 1984. "The Market Value of Differential Voting Rights in Closely Held Corporations," Journal of Business, University of Chicago Press, vol. 57(4), pages 443-67, October. [Downloadable!] (restricted)
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  12. Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January. [Downloadable!] (restricted)
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  15. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 110. [Downloadable!] (restricted)
  16. Zingales, Luigi, 1994. "The Value of the Voting Right: A Study of the Milan Stock Exchange Experience," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 7(1), pages 125-48. [Downloadable!] (restricted)
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  18. Zwiebel, Jeffrey, 1995. "Block Investment and Partial Benefits of Corporate Control," Review of Economic Studies, Blackwell Publishing, vol. 62(2), pages 161-85, April. [Downloadable!] (restricted)
  19. Bebchuk, Lucian Arye, 1994. "Efficient and Inefficient Sales of Corporate Control," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 957-93, November. [Downloadable!] (restricted)
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  20. Nicodano, Giovanna & Sembenelli, Alessandro, 2004. "Private benefits, block transaction premiums and ownership structure," International Review of Financial Analysis, Elsevier, vol. 13(2), pages 227-244. [Downloadable!] (restricted)
  21. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance And Equity Prices," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 107-155, February. [Downloadable!] (restricted)
    Other versions:
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